A New Dawn for Solar Energy?

Although it’s difficult to find anything positive in the likelihood of higher oil prices for the foreseeable future, one silver lining is that it makes renewable energy much more competitive. For the home building industry specifically, a combination of lower prices, constantly improving technology and financial incentives including tax credits and lease programs are allowing builders to bolster their own solar power initiatives while also better separating themselves from older (and often discounted) resales.

The idea for offering solar energy in new homes is certainly nothing new: when I founded a Technology Task Force for the BIA of Southern California ten years ago, private builders such as Shea Homes were already test-marketing them as options in certain markets. By 2008, Shea decided to make solar power systems a standard feature just as federal tax credits were becoming more robust. And this year, after also previously offering solar systems as add-on options, KBHome took the plunge, offering basic solar power systems as standard features along with more robust system upgrades.

For large builders which enjoy economies of scale, they can offer solar systems for a fraction of the retail price which buyers could obtain on their own. For example, if buyers of a KBHome want to upgrade from the standard $7,500 system (which is estimated to cut electricity bills by an average of 30%) to the highest upgrade (which could cut them to nearly zero), buyers would pay $5,000 versus the $15,000 retail cost elsewhere.

For smaller builders not quite ready to offer solar systems as standard features, there are several options available to entice buyers to buy them as an upgrade. Besides federal tax credits of up to 30% of the system’s cost, Energy Efficient Mortgages (also known as ‘green mortgages’) offered by Fannie Mae, FHA and the VA allow borrowers to roll the cost of energy-saving upgrades into their mortgages. Even better, they can allow underwriters to count the estimated monthly savings as extra income, which for strapped buyers can mean qualifying for a higher loan amount.

Of course major solar companies such as SunPower and SolarCity also offer their own financing with interest rates ranging from 5% to 8% depending on the term (generally 5 to 20 years) and no pre-payment penalties. More recently, however, the industry has been promoting leases for these systems, which work a lot like leases for new cars with advantages such as low or no down payments, lower monthly payments (which are often less than the monthly savings in utility bills) and end-of-term options such as a renewing the lease, buying it outright or returning it to the company.

Still, for now the industry remains largely reliant on federal and local incentives, which is why California-based SolarCity is only expanding into states which offer them. Their hope is that once they create larger economies of scale, the costs of the systems will be low enough to be competitive without any incentives at all.

At the same time, improvements in technology will also do their part. According to Bloomberg New Energy Finance, the installation of solar systems worldwide will almost double by 2013, while manufacturing capacity has almost quadrupled since 2008, and will grow by another 43% this year. That will also mean lower per-unit costs, with the cost for rooftop systems already falling by 5% to 8% each year and expected to drop by half by 2020. In many sunny climates with high peak electricity costs, solar energy is already at parity with gas or oil, and will match that of coal within a few years. And that’s certainly a silver lining which can give builders a distinct advantage.